Banking Liquidity

How does the FDIC help prevent a bank from failing?

• They help banks find new customers to take out large loans.

• They insure the deposits in the bank so people are not as likely to take all their money out at once.

• They promote the banks through advertising and create new business for the bank.

• They pass laws in Congress to allow the banks to charge more in interest.

The ability to use your wealth quickly and purchase goods and services with it is known as......

• compounding

• shifting

• stability

• liquidity

The ease with which an asset can be converted into payment for goods & services.

• Medium of Exchange

• Legal Tender

• Liquidity

• Banking

A certain % of checkable deposits that banks keep on reserve.

• Reserve Requirement

• Excess Reserves

• Savings

• Fractional Reserve

The amount banks hold beyond required reserve; amount that banks can lend.

• Reserve Requirement

• Excess Reserves

• Multiplier

• Expansionary Effect

A system that requires banks to hold reserves equal to some fraction (%) of their checkable deposits.

• Expansionary Effect on Economy of a Bank Deposit

• Fractional Reserve Banking System

• Bank Failures

• Money Multiplier

Federal Reserve pays banks for their reserves.

• Open Market Operations

• Required Reserve Rate Changes

• Discount Rate Changes

• Interest Rate Paid on Reserves

The potential amount of money that banks can create based on the initial deposit.

• Bank Failures

• Money Multiplier

• Potential Money Creation Formula

• Open Market Operations

What is the primary function of banking liquidity in the financial system?

• To ensure banks can meet withdrawal demands

• To increase bank profits

• To promote long-term investments

• To reduce interest rates

Which of the following is a measure of a bank's liquidity?

• Loan-to-deposit ratio

• Return on equity

• Net interest margin

• Capital adequacy ratio